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Jim Naughton is an Assistant Professor in the Accounting Information and Management department. His research focuses on the properties and economic impact of accounting information. Jim and his co-authors have examined how governmental accounting affects state-level policy choices, how changes in the regulatory environment affect firms' disclosure choices, why firms choose to invest in socially responsible activities, and how market risk is impacted by firm fundamentals and accounting standards.

Jim received his doctorate in Business Administration from Harvard Business School; his JD from Harvard Law School; and his BS from Worcester Polytechnic Institute. Prior to graduate school, Jim was an actuary at Hewitt Associates, an employee benefits consulting firm, where he worked on the design and administration of employee benefit plans and executive compensation agreements.

Naughton, James and Holger Spamann. 2015. Fixing Public Sector Finances: The Accounting and Reporting Lever. UCLA Law Review. 62(3): 574-620.

The finances of many states, cities, and other localities are in dire straits. In this Article, we argue that partial responsibility for this situation lies with the outdated and ineffective financial reporting regime for public entities. Ineffective reporting has obscured and continues to obscure the extent of municipal financial problems, thus delaying or even preventing corrective actions. Worse, ineffective reporting has created incentives for accounting gimmicks that have directly contributed to the dramatic decline of public sector finances. Fixing the reporting regime is thus a necessary first step toward fiscal recovery. We provide concrete examples of advisable changes in accounting rules and advocate for institutional changes, particularly Securities and Exchange Commission involvement, that we hope will lead to better public accounting rules generally.

We document that corporate social responsibility (“CSR”) expenditures are not a form of corporate charity nor do they improve future financial performance. Rather, firms undertake CSR expenditures in the current period when they anticipate stronger future financial performance. We show that the causality of the positive association between CSR expenditures and future firm performance differs from what is claimed in the vast majority of the literature and that corporate accountability reporting is another channel through which outsiders may infer insiders’ private information about firms’ future financial prospects.

We find a negative association between a state׳s fiscal condition and the use of discretion in applying Governmental Accounting Standards Board (GASB) rules to understate pension funding gaps. We also find that the use of discretion is negatively associated with states’ decisions to increase taxes and cut spending. In addition, we find that the funding gap understatement is positively associated with higher future labor costs. Importantly, this association is primarily attributable to the GASB methodology, which systematically understates the funding gap. This suggests that the GASB approach is associated with policy choices that have the potential to exacerbate fiscal stress.

We investigate the role of improved monitoring on spreads using a comprehensive panel of NYSE limit-order book data for 2002--2007. These data allow us to uniquely examine the relation between spreads and monitoring because the NYSE was the dominant exchange during the early 2000s, and that was the time period during which there was the most substantial changes in spreads. We identify the level of monitoring by the market maker by examining whether publicly available information in order flow predicts permanent changes in price. We find that limit order imbalance strongly (weakly) predicts idiosyncratic price jumps in small (large) stocks, but that non-idiosyncratic price jumps are anticipated by liquidity withdrawals by market makers in all securities. These findings are consistent with a model of constrained attention of market makers. In addition, we find that mean returns to a portfolio based on order flow imbalance decline significantly over the sample period, and that this decline explains a significant portion of the decline in spreads and adverse selection over the same period. Our findings illustrate a specific mechanism through which algorithmic trading has reduced spreads, and provides a possible explanation as to why spreads have not continued to fall since 2007 despite the dramatic increase in high frequency trading.

Accounting For Decision Making (ACCT-430-0) This course is equivalent to the MMM core course MMM Accounting for Decision Making (ACCT-440).
This course acquaints students with the process used to construct and understand the financial reports of organizations. The objective is to understand the decisions that must be made in the financial reporting process and to develop the ability to evaluate and use accounting data. Emphasis is placed on understanding the breadth of accounting measurement practices and on being able to make the adjustments necessary for careful analysis. The course highlights the linkages between accounting information and management planning, and decision making and control.